Economic development in Germany is currently on particularly shaky ground. Given the good shape the German economy is in, things should continue to move upwards, but the danger that the economy will hit the skids is now considerable. Uppermost are the risks stemming from the European debt crisis. The slide in incoming orders from the eurozone by almost 13% within the space of a year (Q2 2012 on a year earlier) has caused the export engine to stall. Even more worrying, however, is that concerns about the future of the euro are increasingly reflected in companies’ propensity to invest. Over the last three quarters equipment investment has fallen by 3½%.

Allianz SE
Munich, Sep 25, 2012

Nonetheless, the collapse in sentiment currently seems more pronounced than the actual deterioration in the situation. While the business climate in industry, according to the Ifo test, has literally plummeted in recent months, new orders have merely stagnated.

“A slump in sentiment can herald a recession, but does not have to. However, it is irrefutable that economic growth inGermany has slowed down considerably. In the first half of this year GDP grew by around 1½ percent at an annual rate, in the second half the figure will be 1 percent at best,” said Michael Heise, chief economist at Allianz.